May 22 (Bloomberg) -- Rajat Gupta, who was a director at
Goldman Sachs Group Inc., “threw away his duties” to the
company when he tipped hedge-fund co-founder Raj Rajaratnam to
news that the bank would get a $5 billion investment, a
prosecutor told jurors.

At the start of Gupta’s insider-trading trial, Assistant
U.S. Attorney Reed Brodsky told jurors that Gupta broke the law
when, immediately after a Goldman Sachs board meeting on Sept.
23, 2008, he informed Rajaratnam that Warren Buffett’s Berkshire
Hathaway Inc. would invest $5 billion in the firm. Rajaratnam,
Gupta’s friend and co-founder of Galleon Group LLC, traded on
the tip, Brodsky said.

In the defense opening yesterday in Manhattan federal
court, attorney Gary Naftalis told jurors that Gupta was
“innocent of the allegations” and said that the government has
the “wrong man on trial.”

Brodsky said “Gupta threw away his duties, he threw away
his responsibilities, and he broke the law at the time the
company was in crisis.”

“He used those secrets to help his friend, and Raj
Rajaratnam sold his Goldman stock and made nearly a million
dollars from Gupta’s tip,” the prosecutor said.

Naftalis said of his client that “it defies common sense
that in the twilight of an illustrious life, he’d decide
knowingly, willfully and deliberately to suddenly become a
criminal and do it for no benefit.”

The lawyer said even if there is evidence of leaks from
Goldman Sachs, the tips didn’t come from Gupta.

“There may be a crime here but Rajat Gupta had nothing to
do with it,” he said. “You’ve got the wrong man on trial here.
The evidence will show that Raj Rajaratnam had sources all over
town, he had other sources at Goldman Sachs.”

Gupta, who ran consulting firm McKinsey & Co. from 1994 to
2003, also sat on the Procter & Gamble Co. board. The U.S.
alleges he passed insider tips to Rajaratnam in a conspiracy
that lasted from 2007 and January 2009. Rajaratnam is serving an
11-year prison sentence for insider trading.

Procter & Gamble

Prosecutors say Gupta, 63, gave Rajaratnam material,
nonpublic information about New York-based Goldman Sachs and
Cincinnati-based P&G, the world’s largest consumer-products
company. Gupta is charged with one count of conspiracy and five
counts of securities fraud, which carries a maximum 20-year
prison sentence.

U.S. District Judge Jed Rakoff, who is presiding over the
trial, directed that prosecutors call their first witness today.

Brodsky told jurors about four alleged illegal tips Gupta
passed to Rajaratnam from Goldman Sachs, including details of
Goldman Sachs’s earnings in the first quarter of 2007 and fourth
quarter of 2008, as well as the $5 billion investment by
Berkshire Hathaway in September 2008.

The leaks generated millions of dollars in profits for
Galleon, Brodsky said.

Gupta also gave Rajaratnam secret information about P&G’s
2008 sale of its Folgers Coffee unit to J.M. Smucker Co., the
prosecutor said.

Voyager Capital

Brodsky told jurors that Gupta and Rajaratnam had close
financial ties, including a venture between the two men called
Voyager Capital Partners. Gupta was so comfortable with
Rajaratnam and Galleon that he had his own swipe card to enter
Galleon’s offices, like an employee of the firm, he said.

The prosecutor told jurors they will hear recorded wiretaps
from Rajaratnam’s mobile phone, including a conversation in
which he said he had been told, after the board meeting
approving Buffett’s investment, that “something good is going
to happen” to Goldman Sachs. Jurors will also hear from
witnesses who pleaded guilty and are cooperating with the
government in hopes of leniency, he said.

Naftalis told jurors that Gupta, orphaned as a teenager in
India, rose to become “one of America’s most respected business
leaders.” He said at the same time Gupta was involved with
Rajaratnam, most of Wall Street viewed the fund manager as
respectable.

“Rajaratnam was in a secret and separate world concealed
from Rajat Gupta and concealed from every other law-abiding
person,” Naftalis said. “There will not be any direct evidence
that Rajat Gupta was part of that secret insider-trading world
because he wasn’t.”

Hearsay Evidence

Naftalis assailed a government case that he said was based
on hearsay. After thousands of hours of wiretaps on Rajaratnam’s
phones over 10 months, prosecutors never once heard Gupta
directly tipping Rajaratnam, he said.

“They’re presenting a case based on speculation, a case
based on guesswork, a case based on suspicion,” he said.
“There is an absence of real, hard, direct evidence.”

Naftalis said Gupta had no motive to tip Rajaratnam, who
lost Gutpa’s entire $10 million investment in Voyager and took
an additional $40 million in fees and redemptions from the fund
without Gupta’s knowledge, he said.

Naftalis added that Galleon frequently traded in Goldman
Sachs stock and that what the prosecutors have done in this case
was “cherry-pick” trades supporting their theory. Gupta had
“perfectly legitimate” reasons to speak to Rajaratnam, he
said.

Jury Selection

Earlier yesterday, both sides selected 12 jurors and four
alternates, including a psychiatric nurse whose husband works
for Bank of America Corp., a professor of strategic design and
behavior, an occupational therapist, a fourth-grade teacher, an
executive at a nonprofit organization, a freelance beauty
consultant and the president of a consulting firm.

The jurors, eight women and four men, are from Manhattan,
the Bronx and Westchester and Rockland counties.

Witness testimony is scheduled to begin today with Caryn
Eisenberg, who was Rajaratnam’s personal assistant, Brodsky
said. The U.S. also plans to call Thomas Zukauskas, an agent
with the Federal Bureau of Investigation, and Carolann Shields,
an official at McKinsey, according to Stephanie Cirkovich, a
court spokeswoman.

Shields testified last year at Rajaratnam’s trial that the
firm’s phone records the records show that Gupta’s phone
telephoned Rajaratnam’s phone within seconds of participating in
a September 2008 Goldman Sachs board meeting about Berkshire
Hathaway’s investment.

Brodsky also told Rakoff before court yesterday that the
government intended to call former Goldman Sachs banker Byron D.
Trott, who helped arrange the Buffett deal, to the stand May 23.
William George, an outside director at Goldman Sachs, would be
called May 24, Brodsky said.

The case is U.S. v. Gupta, 11-cr-907, U.S. District Court,
Southern District of New York (Manhattan).